Honghua : VOLUNTARY ANNOUNCEMENT COMPLETION OF THE FIRST PHASE OF THE SHALE GAS FRACTURING SERVICE PROJECT

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HONGHUA GROUP LIMITED

宏華集團有限公司

(a company incorporated in the Cayman Islands with limited liability)

(Stock code: 196)

VOLUNTARY ANNOUNCEMENT

COMPLETION OF THE FIRST PHASE OF THE SHALE GAS

FRACTURING SERVICE PROJECT

This is a voluntary announcement made by Honghua Group Limited (the "Company").

Reference is made to the announcement of the Company dated 23 December 2019 in respect of entering into a service agreement of shale gas fracturing (the "Announcement"), pursuant to which, all-electric general fracturing service will be provided to a shale gas development platform in Changning, Sichuan, China by the Subsidiary of the Company. Unless stated otherwise, capitalised terms used in this announcement shall have the same meaning as those defined the Announcement.

The board of directors of the Company is pleased to announce that the Subsidiary of the Company recently completed the first phase of the shale gas fracturing service project at 3 wells in Changning district, with a total of 67 stages of fracturing operations completed. The Company adopted all-electric zipper fracturing operation, and the operation team set several construction records for the platform. The average drainage volume reached 16 m3 per minute, the pressure reached 95 MPa, the maximum construction speed reached 4 fracturing stages per day, and the average sand intensity reached 290 tons per stage. With the aforesaid working conditions, the electric fracturing pump also achieved zero fault after working for 200 consecutive hours, setting a national record.

In order to ensure national energy security and increase the proportion of clean energy, the exploration and development in unconventional oil and gas such as shale gas have been accelerated, and the industry is also exploring the development model with high efficiency and low cost. Through efforts in recent years, the major industry players in domestic market have gradually recognized the green exploitation solution with electric fracturing, while all-electric fracturing model of "prioritizing distribution network, exploiting gas by using electricity" has gradually become the industry trend. As of 31 December 2019, the Company achieved the capability of providing electricity-driven fracturing pumping service with 750,000 HHP in PRC market simultaneously, establishing itself as a domestic leading supplier of electric fracturing pumping service. Currently, the Company has conducted electric fracturing pumping service in shale gas

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and tight oil and gas sections in Weiyuan, Changning, Rong County, Lu County in Sichuan, Fuling, Nanchuan, Wulong, Pengshui in Chongqing and Mahu in Xinjiang. Its service covers four major production areas, Fuling shale gas field (under China Petrochemical Corporation ("Sinopec Group")), South-Sichuan shale gas field (under China National Petroleum Corporation ("CNPC Group")), Wei (yuan) Rong (under both CNPC Group and Sinopec Group) and Changning shale gas field exemplary district (under CNPC Group), with over 3900 stages of pumping service provided. We set records of 6 stages and 8 stages of fracturing per day in Sichuan and Xinjiang, respectively. In Nanchuan of Chongqing, the highest operation pressure reached 120 MPa.

The Company has been paving the foundation for the development of shale gas. In retrospect of the development of electric fracturing equipment and services, in 2012, the Company had, for the first time, announced the general electric solutions for the shale gas business and debuted the electric fracturing crowbars with the world's highest single-machine capacity of 6000HP at the US Offshore Technology Conference. In 2015, for the first time in China, collaboration of electric fracturing with traditional diesel-powered vehicles has been realised. In 2017, the Company has made large-scale and intensive use of the 35-KVA grid to power 8 electric fracturing pumps for the first time. In 2018, the Company realised the fracturing operations on the Weiyuan platform by integrating two power sources of the 35-KVA grid and gas-fired power. In May 2019, the Company utilised 10 full electric fracturing pumps in intensive and large-scale operations for the first time. To date, the Company has made high-pressure,high-pump-rate and fully electric shale

gas development possible. In July 2019, the Teleinformatic Centre of Oil and Gas Engineering Services (油氣工程服務遠程資訊中心) was put into operation, enabling the provision of distant

monitoring, maintenance and guidance for drilling and fracturing platforms. With the set-assembly fracturing equipment mainly powered by the 6000HP electric fracturing pumps brought into use, the Company will focus on the provision of key electric pumping services to support domestic oil and gas engineering service providers in their general fracturing operations, and make greater contribution to unconventional oil and gas development.

On behalf of the Board

Honghua Group Limited

Jin Liliang

Chairman

PRC, 6 February 2020

As at the date of this announcement, the executive directors of the Company are Mr. Jin Liliang (Chairman), Mr. Zhang Mi and Mr. Ren Jie, the non-executive directors of the Company are Mr. Han Guangrong and Mr. Chen Wenle, and the independent non-executive directors of the Company are Mr. Liu Xiaofeng, Mr. Chen Guoming, Ms. Su Mei, Mr. Poon Chiu Kwok, Mr. Chang Qing and Mr. Wei Bin.

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